## Facts

- Cracker Barrel announced it would no longer employ homosexuals and terminated several gay employees.
- Institutional shareholders submitted a proposal asking Cracker Barrel to adopt a policy prohibiting discrimination based on sexual orientation and to include the proposal in its proxy materials.
- SEC Rule 14a-8 required inclusion of qualifying shareholder proposals but allowed exclusion of proposals relating to an issuer’s “ordinary business operations.”
- Cracker Barrel requested a staff no-action letter stating the staff would not recommend enforcement if the company omitted the proposal under the ordinary-business exclusion.
- The SEC staff issued the no-action letter and stated that proposals concerning employment policies and practices would be treated as excludable “ordinary business,” even if they raised social or policy issues.
- Shareholders sued under the APA, seeking to bar the SEC from implementing the new position without notice-and-comment procedures and alleging the change was arbitrary and capricious.

## Issues

1. Whether the SEC staff’s no-action letter and announced shift in applying Rule 14a-8’s ordinary-business exclusion constituted a legislative rule requiring notice-and-comment rulemaking under APA § 553.
2. Whether the district court properly enjoined the SEC from issuing inconsistent no-action positions absent notice and comment.

## Decision

- The Second Circuit reversed the district court’s judgment and vacated the injunction.
- The court held the no-action letter and interpretive shift did not constitute a legislative rule triggering APA notice-and-comment requirements.
- The court treated the staff position as interpretive guidance about how the SEC would apply an existing regulation and exercise enforcement discretion.
- Because the district court did not reach the arbitrary-and-capricious claim, and the procedural APA issue was dispositive, the injunction could not be sustained on that alternative ground.

## Legal Principles

- Legislative rules have the force of law and generally require notice-and-comment procedures; interpretive rules and general policy statements generally do not.
- A staff no-action letter ordinarily indicates only that the staff will not recommend enforcement action; it does not itself impose binding legal obligations or independently alter legal rights.
- When the binding norm remains the text of an existing duly promulgated rule, an agency’s changed interpretation of how that rule applies to a category of cases is typically interpretive rather than legislative.
- The fact that an agency previously used notice and comment to announce an interpretive position does not, standing alone, convert later interpretive changes into legislative rules requiring notice and comment.

## Conclusion

The court held that the SEC staff’s revised application of Rule 14a-8’s ordinary-business exclusion through a no-action letter was interpretive guidance without independent legal effect, so the SEC was not required to use APA notice-and-comment procedures before applying the new position.


N.Y.C. Emps.' Ret. Sys. v. SEC, 45 F.3d 7 (2d Cir. 1995)